A stimulus program that will knock our socks off!

Dec 9, 2014

New York, New York

Dear Diary,

It's cold here in Manhattan. We've never lived in New York. And every previous visit had left us unenthusiastic. NYC is not very pretty, at least not compared to Paris. And lower Manhattan always seemed gritty, dirty and unkempt. Like a homely man or a homeless woman.

But a lot has changed. NYC is now full of foreigners. Enter our hotel lobby and you hear a din of strange and familiar accents, English, French, Russian... and many we've never heard before. (We make a small contribution to the cacophony by taking Portuguese lessons in the tea room.)

Soho is full of young people - often dressed in country duds; and almost all the men with some facial hair. One man at a fancy restaurant wore a plaid shirt and had a big full beard. He looked like a lumberjack.

"That's the style," said our 26-year-old son.

Here in the Bowery the pace is fast... and there are new shops, luxury stores and chic restaurants on every street. And just a few blocks away is Wall Street. And thanks largely to the feds, more and more of the world's wealth runs through the US financial industry.

"Isn't nature marvelous," we began, obscurely, a monologue directed at Elizabeth.

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"What do you mean?"

"I mean, it never would have occurred to me that I should pay $10 for a cup of coffee and a cookie... or $200 for a theatre ticket... or $500 a night for a hotel room... or $1,200 for what looks for all the world like a 1970's Danish Modern chair.

"Of course, I never thought people would pay '2 and 20' - that's what hedge funds charge... 2% of capital and 20% of gains... for money management either. But when you hang around in New York for a while it all begins to seem normal. Uptown, developers are putting up the most expensive condos in the history of the world. Forbes Magazine:
    The 54-story condominium tower at 520 Park Avenue is scheduled to begin rising by February 2015, says Arthur Zeckendorf of Zeckendorf Development. Set on 60th Street two blocks east of Central Park, 520 Park Avenue is designed to rival another, wildly successful Zeckendorf project: 15 Central Park West, now a billionaire enclave and one of New York's most prestigious addresses.

    Robert A.M. Stern Architects designed the 520 Park Ave tower, which will contain 31 homes. The tower's seven 9,100-square-foot duplexes are priced at $67 million; its 23 4,600-square-foot single-floor apartments, dubbed "simplexes," start at $16.2 million
Downtown, Wall Street takes money from people who want to think of themselves as clever investors. Then, developers take money from Wall Street's cleverest pitchmen. Lloyd Blankfein himself bought at 15 Central Park West, as did hedge fund billionaire Daniel Loeb.

Money moves around. As soon as you get some, you find things to do with it. Or someone else does. Rarely does it stay put.

Readers have complained that we are negative, cynical and 'always gloomy.' We deny the allegation. Actually, we feel very chipper and positive. Even about the stock market. It's just that, in our view, it is not a way to make investors rich. It is just a way to keep the money circulating.

Yes, we expect a 1,000 point drop in the Dow at some point. But that is not the end of the story. It may be just the beginning. In fact, it will probably not even be the end of this bull market. This is a manipulated market. And the manipulators aren't going to go to sleep in the face of collapsing stock prices. Instead, they'll wake up fast - and rush in with a stimulus program that will knock our socks off.

That's when 'you ain't seen nothing yet' will be the appropriate remark at cocktail parties, family reunions and investment conferences, no matter what the subject. We're just guessing, of course. But our guess is that - after a scare - the feds will get to work in a majorly reckless way, recirculating money. Today's excesses will seem modest in retrospect.

The route forward for the feds is being mapped by Krugman, Stiglitz, the Financial Times, and now Bloomberg. Clive Crook, formerly with the FT and now with Bloomberg, offers advice on 'QE for the People' to European policy makers:

    Of the roughly 275 million adults with social-security numbers in the eurozone, some 90 percent are on the electoral register. Extrapolating from America's experience in 2001, when a $300 per person social-security rebate boosted spending by about 25 percent of the total amount distributed, a €500 ($640) check from the ECB could increase spending by about €34 billion, or 1.4% of GDP. The extra tax revenue that such a rebate would produce would reduce government deficits significantly.

    Beyond lifting the eurozone economy out of deflation, such an initiative would have massive political benefits, as it would reduce resentment toward European institutions, especially in struggling countries like Greece and Portugal, where an extra €500 would have a particularly strong impact on spending. In this way, the ECB could prove to disgruntled citizens and investors that it is serious about meeting its inflation target, and even help to stem the rise of nationalist parties.

    ... On the face of it, though, this approach would be legal. It would make Milton Friedman proud. Best of all, it's a good idea. Fire up the helicopters!
His advice was intended for Europeans. Our guess is that American policy makers are paying attention too.

Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.

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